Bill Simon, the GOP candidate for governor already reeling from criticism of his past business dealings, faced more trouble Wednesday as a Los Angeles jury found his company liable for fraud in an investment deal -- and awarded $87 million in damages.

The case was brought by Paul Edward Hindelang, who owned 95 percent of Pacific Coin, a pay phone firm in which Simon's family company had invested. Hindelang alleged that William E. Simon & Sons and partner B-R Investors took over a controlling interest in his company, undertook a risky public offering and saddled the firm with overwhelming debt before it was seized by the banks.

A Los Angeles Superior Court jury awarded Hindelang $22.2 million in general damages Tuesday. On Wednesday, jurors added $65 million in punitive damages against William E. Simon & Sons and $10 million in punitive damages against B-R Investors.

Simon called the decision "fundamentally flawed," saying Hindelang was a convicted drug dealer who sued after he was fired because he "concealed facts about his background."

"I expect the judge to set aside this judgment or it will be overturned on appeal," Simon said in a prepared statement.

Hindelang's attorney, Jason Frank, said his client -- now 55 and living in Santa Barbara -- never concealed his background.

"We're very pleased . . . the jury decided that William E. Simon & Sons was not accepting responsibility," Frank said. "The mood of the jury, and the country, is that they're not going to give businesses the benefit of the doubt anymore."

Simon is on leave from his post as co-chairman of William E. Simon & Sons, a firm founded by his father, the late Nixon treasury secretary. The candidate was not named personally in the suit but was co-chairman at the time of the investment in the pay phone firm.

The jury's decision and its timing create another distraction for Simon in his campaign against Democratic Gov. Gray Davis.

With public nervousness mounting about business ethics in the wake of the Enron and WorldCom scandals, the decision puts a spotlight on Simon's financial dealings as President Bush and Vice President Dick Cheney prepare to attend fund-raisers this month for the multimillionaire businessman candidate.

In addition, a series of damaging stories has raised questions about Simon's corporate background and personal finances, including the candidate's income taxes, which he refused to disclose until providing reporters a brief look recently at his tax returns.

The business relationship between Simon and Hindelang began in February 1998, when William E. Simon & Sons and B-R Investors purchased 60 percent interest in Pacific Coin. The lawsuit by Hindelang claimed that Simon and other investors destroyed his company by misleading him -- suggesting that they would abide by his conservative business plan, while secretly racking up debt with an aggressive strategy to maximize profits for a public offering.

That plan for an IPO failed -- and Pacific Coin was seized by the bank in December 2000.

The jury found Coinable Simon, the investment company used by Simon & Sons in the transaction, and B-R Telephone Partners did not meet their fiduciary duty in the dealings with Hindelang.

But Simon said the real source of troubles was Hindelang's failure to disclose his background.

"The company immediately suspended him in December 1998; a thorough investigation confirmed his background as a drug dealer, which resulted in his termination in May 1999," Simon said in his statement.

The candidate, who has touted his experience as a former federal prosecutor,

charged that Hindelang "is precisely the kind of criminal I used to pursue."

Jurors, however, did not buy Simon's argument, which Simon & Sons also had raised in a separate suit accusing Hindelang of committing fraud by failing to disclose his troubled past.

In 1981, Hindelang pleaded guilty to charges he smuggled 500,000 pounds of marijuana into the country. He served more than 2 1/2 years in prison and forfeited $50 million in proceeds from the drug trade to the government. U.S. customs officials said he had headed one of the nation's largest marijuana smuggling operations.

PAST WAS NO SECRET

Hindelang's lawyer said his client's past was the subject of numerous media accounts going back more than a decade.

"It took a lot of courage for him to proceed against these guys," Frank said of the lawsuit. "They were using every kind of threat and saying they were going to embarrass him . . . but the jury reacted very negatively to those attacks.

"They said the conviction was in his past, and the man deserves a second chance in America," Frank said. "That's what Pacific Coin was -- and (Hindelang) was one of the most highly respected executives in the pay phone industry."

The jury decision could be a barometer of the mood of Americans feeling the pinch of a soured economy -- and angry with corporate insiders, political analysts said.

"People are skeptical about business -- and Simon's whole claim to being different than Gray Davis is that he's a businessman who will bring organization and the traditional business ethic to the government office," said Sherry Bebitch Jeffe, a senior scholar at the University of Southern California. "I'm not sure voters want that anymore."

Democrats jumped on news of the jury verdict as another example of GOP coziness with business insiders.

Garry South, Davis' chief political adviser, said Simon can't distance himself from the verdict.

"This is not some faraway company . . . this is a California company and a legal proceeding in front of a California jury who said Simon has committed fraud."

But Republicans dismissed the case as insignificant -- and unfair.

'BAD RULING'

"This was a bad ruling, not based on the merits," said GOP consultant Sean Walsh, who has advised the Simon campaign.

State voters "care about having $100 million thrown away on a computer system that no one needs," Walsh said, referring to the Oracle contract signed by the Davis administration that led to firings and resignations in the governor's staff.

"They certainly don't care about the allegations of a professional liar and convicted drug dealer," he said.